Federal spending as economic stimulus

WASHINGTON America's economy is poised to roar ahead if only Washington would stop holding it back.

Since the Great Recession officially ended, the private sector has been adding jobs. What's kept the economy in low gear and unemployment stubbornly high has been the shrinking of government workforces: cops, teachers and other valuable public employees let go in the face of inadequate tax revenue.

Most of these layoffs occurred at the state and local level, but a vigorous federal response could have prevented them.

That's what the federal government should do: when local governments – hemmed in by rigid budget rules and limited borrowing authority – are starved for resources during an economic downturn when their tax revenue falls just when demand for their services grows. When such a crisis occurs only Washington can pick up the slack.

Estimates are that the aid to localities included in the American Recovery and Reinvestment Act of 2009, known as the “stimulus,” saved 400,000 jobs in both the public and private sector. The problem now is that the federal government has stopped being part of the solution and become part of the problem.

The indiscriminate federal budget cuts known as the “sequester” that kicked in March 1 will cost the American economy 750,000 jobs, according to the nonpartisan Congressional Budget Office.

Meanwhile, wages on 2 million federal employees – janitors to security guards to park rangers to air- traffic controllers – have been frozen for over two years, diminishing the purchasing power of middle-class families all across the country. It's little-known that 85 percent of the federal workforce lives outside Washington.

These government cutbacks are known as “austerity,” an extremely effective policy if your goal is to turn a fragile recovery into another recession. Just ask Britain and other European nations that have cut their way out of prosperity in recent years. Last month's disappointing employment figures in the United States indicate that we're far from robust economic health and that austerity is the last thing we need.

The first thing is to acknowledge that our current debt-reduction efforts can't be primarily focused on spending reductions. We can't cut our way out of debt, especially if we want to support our economy at the same time. We need a balanced approach of thoughtful spending curbs and increased revenue.

Yet over the past three years of deficit reduction deals, we've cut two-and-a-half times more from programs that serve and protect the American public than we've raised in new revenue from wealthy interests. Unfortunately, the sequester further skews that ratio.

If we eliminated the extra value of tax deductions enjoyed exclusively by wealthy families we could raise half-a-trillion dollars over the next decade. And if we closed corporate tax loopholes that encourage multinational companies to hide profits and ship jobs overseas, we could raise an additional $600 billion.

Sensible tax reform like that would help bring the curtain down at long last on Washington's long-running budget drama. The inconvenience of slightly higher taxes would be greatly outweighed by the investing certainty created by a federal government finally in control of its own finances.

Despite the claims of certain members of Congress – who ironically are federal employees themselves – government can and does create jobs through direct employment, as well as public investment in social insurance, economic development, national defense, education and scores of other vital activities.

If we don't want to go deeper in debt, we need sufficient tax revenue from those best able to supply it to support job-creating federal investment in our still-struggling economy.

William Rice is a tax fairness specialist for Americans for Democratic Action.

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